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MILES O'BRIEN, CNN ANCHOR: Well, like bringing six penny nails to a Home Depot, President Bush is adding to his stack of campaign cash today. He headlined a fund-raiser today in the Baltimore area. Right now, he is having a roundtable discussion at a Home Depot. Let's listen in for a moment.

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GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: But it hurt our economy when they attacked us, of course. Not only did it change foreign policy, because we can't sit there and pick and choose, you know, what threat we deal with. You know, we have become vulnerable. We're going to have to deal with the threats before they mature and come upon us.

But it hurt our economy; it hurt us pretty bad. And then we started to recover -- and I just want to remember another thing we've overcome.

BUSH: Some of the corporate citizens of America forgot what it meant to be a responsible citizen. This guy is a responsible guy. See, some of them didn't tell the truth though.

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We had some of our citizens not tell the truth. They forgot what it meant to be a leader, and it hurt the confidence of the people. You might remember that period of time. There was these scandals and people began to wonder whether or not there was honesty in the system.

By the way, the way you deal with that, of course, is you find them and you put them into jail. Those who lie, cheat and steal go to jail.

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And then, as you know, I made the decision to deal with threats, as we saw, when we put the doctrine out that said, "If you harbor a terrorist, you're just as guilty as the terrorist."

And the Taliban, we took them down for the sake of our own security, and for the sake of the long-suffering people of Afghanistan.

And then I obviously made the decision to go into Iraq. And by the way, a free and peaceful Iraq is in our nation's interest; it's in our security interest.

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That affected the economy. When you turn on your TV and it said, "America's marching to war," that's not very conducive for -- that's not a very positive statement. It doesn't build a lot of confidence.

BUSH: People, you know what -- marching to war, why would I want to invest in my home? Or why would I want to come to Home Depot if I'm fixing to go to war?

So we've overcome a lot when you think about it. Today, the unemployment rate dropped, as you may know, from 6 percent to 5.9 percent. More workers are going to work. Over 380,000 have joined the workforce in the last couple of months.

We've overcome a lot. We have a strong country, a strong economy. A lot of it has to do with the fact that we've got the best workers in the world.

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Our productivity's high. I hope some it has to do -- I know some of it has to do -- I hope you understand some of it has to do with the fact that the role of government can help create growth.

You see, when a person has more money in their pocket, they're likely to come to Home Depot.

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If they'd had less money in their pocket, they may not come here. And so, I worked with the Congress.

I want to thank Congressman Ehrlich -- when he was in the Congress -- now Governor Ehrlich.

We cut taxes on people. It's your money to begin with, by the way. You've got more money to spend. And when you have more money to spend, it increases demand for a good or a service. And when that demand increases for a good or a service, somebody has to produce it.

And so the tax relief went for everybody, not just a favored few. Everybody got tax relief, and it helped the economy. It also helped small business.

You're going to hear from some entrepreneurs here. And by the way, most new jobs in America are created by small businesses. We're happy to have the Home Depot jobs, don't get me wrong.

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But the truth of it is, the most new jobs are started by the entrepreneurs. And so you're wondering why we've got small business owners here? Because I want you to hear from them. I want you to hear what it means to have a little more money in your pocket. BUSH: Most small businesses pay tax at the individual income tax level. See, these two small businesses do. Your Sub-Chapter S's, which means when the taxes come out you pay like you're an individual, your business does, which means when you reduce individual taxes, really what you're doing is you're making a big difference for small businesses across America so that they can grow and hire new people.

If small businesses create most new jobs, then it makes sense to reward small businesses for labor and risk by reducing their taxes, which we did.

We did a couple of other smart things. If you're married, you ought not to be penalized in the tax code. It seems like the tax code ought to encourage people to be married, not discourage them from being married.

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We know how hard it is to raise a child and therefore we increased the child credit to $1,000 per child. That helps if you're a mom or a dad.

And, actually, this summer, I remember going -- I think it was to Philadelphia where they were making the checks. I said, "The check is in the mail." After I said it, I felt a little nervous.

(LAUGHTER)

Fortunately, it was in the mail.

And so you got the difference between the child credit today and the new child credit of $1,000 per child. That's important. That's important relief. That's part of the money going into your pocket.

We also provided incentives for small businesses to make investment. When small businesses invest in machinery or computer equipment, somebody has to build it, see. And when somebody builds that machine, somebody is more likely to find work.

And so, in other words, we passed a plan that makes sense.

Part of the things you'll hear me talk about is how to continue the growth. I mean, we're growing. This economy is good. It can be better, so more people find work.

One of the ways to make sure this economy continues to grow is to make all the tax relief we pass permanent. See, it's going to go away in phases.

The child credit is going to go back down, the marriage penalty will go back up, taxes will go back up, unless we make this permanent.

It doesn't make any sense to have a tax code that gyrates like that. You need stability in your tax code, particularly for the small business owners and planners. So one thing that I want you to take away from here is that if you're interested in job creation and job growth for the future, the tax relief we passed must become permanent.

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I want to thank all the local officials who've come, by the way.

BUSH: I know the lieutenant governor's here. I want to thank the members of the House and the Senate. It turns out when the president shows up, all kinds of people come.

(LAUGHTER)

And I want to thank you for being here. It's an honor to be here. I look forward to maybe shaking a couple of hands on the way out.

Why don't we start off -- we've got a man here who's building homes. One of the interesting things about our policy is that when interest rates go low...

O'BRIEN: All right, as the president of the United States switches into the question and answer period of this, we're going to move on. We'll of course be monitoring that for you. The president's conversation on the economy comes amidst news on the nation's jobless picture today. It's good news, but it's -- there's an asterisks or two in all of this. The labor department says the unemployment rate fell to 5.9 percent in November. That's the lowest level in eight months. You heard the president refer to all of that. But there's more to this once you get embedded in those numbers a little bit.

And who better to ask then Jaret Bernstein, who is a senior economist from the Economic Policy Institute, joining us from Washington.

O'BRIEN: All right, the jobless picture looks good. But there's some buts. Why don't you give them to us?

BERNSTEIN: Sure. One number you didn't hear from President Bush today was 57,000. That was the number of jobs that were created in November. Now, that's a better number than we had earlier in the year, when we were losing jobs on a monthly basis. But that's far too few jobs to employ job-seekers, to absorb the folks coming into the labor market, and it's far below the number of jobs that the president's advisers themselves told us the tax cut would generate. That's a disappointing number.

O'BRIEN: All right. The expectation at least was for at least 150,000. Some would tell you for the full-fledged recovery to be in gear, it should be upwards of 400,000 jobs gained per month. That's a big number, and that's a long way from the 57,000.

BERNSTEIN: Exactly my point. Unless we start generating more jobs, we're going to see continued problems in this recovery.

Let me give you a great example. Because the unemployment rate has been relatively high, and stuck around 6 percent for the past year, wage growth has slowed considerably. Wages are now growing on an annual basis less than 1 percent per year. That's well below inflation. Now, the president mentioned the tax cuts as giving a boost to consumers. That's largely out of the system. What consumers need to look towards now are wage and salary income. And that is, again, being held down by some of the weakness in the labor market. The trend is positive. It's better to be creating jobs than losing them. But we are creating far too few jobs to really call this a robust recovery from the labor market's perspective.

O'BRIEN: And one area which is really important to focus on is that battered manufacturing sector right now. What do the numbers tell you there, Jaret?

BERNSTEIN: Well, we all hope we might see positive job gains in manufacturing for the first time in 39 months. Unfortunately, those hopes were dashed. This is the 40th month in a row that manufacturing employment was down. Clearly, this is a sector that is in real disarray. These jobs pay better than average, because we keep losing jobs in higher-paying sectors and adding jobs in lower-paying sector, the average wage of the jobs we've been adding is about 14.50. The average wage of the jobs we've been losing is about $17 per hour. So we are adding jobs in lower-paying sectors. That's also hurting family incomes. Working families are really constrained by this essentially weak recovery from the labor market perspective. Robust growth elsewhere in the company, it's really yet to feed into the labor market in a consistent, promising way.

O'BRIEN: Well, to what extent might we be witnessing something more permanent, a fundamental shift to a service economy, where wages will never get back to where they were, relatively?

BERNSTEIN: Oh, there's no question that the job gainers in the future are going to be services. But there's no reason on the other hand we should consign the manufacturing sector to the dust bin. I mean, this is a vital sector, both in terms of American productivity and in terms of American job quality. So we obviously need to take policy action to improve manufacturing employment. That, by the way, is exactly what the administration did with the steel issue. Of course, for political reasons, and international reasons, they had to reverse that decision. O'BRIEN: Jaret Bernstein, senior economist at the Economic Policy Institute, thank as always you for dropping by, we appreciate it.

BERNSTEIN: My pleasure.

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